GM and Toyota's failed marriage

By Chris Isidore, senior writerApril 1, 2010: 3:47 PM ET

NEW YORK (CNNMoney.com) -- The turmoil that has roiled the U.S. auto industry over the last decade resulted in dozens of auto plants closing. But none of those closures are as significant or symbolic of that upheaval as the one taking place Thursday.

The plant that will make the last of nearly 8 million cars Thursday afternoon is the strangely-named New United Motor Manufacturing Inc., or NUMMI plant. It's in Fremont, Calif., just north of Silicon Valley and thousands of miles from the U.S. industry's home turf in the Midwest.

From 1985 through last year, the plant was a joint venture between General Motors and Toyota Motor, as both companies tried to learn new ways of doing business.

GM hoped to adopt the Toyota production method that stressed product quality over quantity, and teamwork between hourly and salaried staff -- not easy lessons for a U.S. automaker to learn.

Toyota, which had previously only built vehicles in Japan, was learning how to build outside of its home market, and how to get American workers to put aside their history of war between management and labor and adopt the new system.

GM pulled out of the partnership last year during its bankruptcy process, while Toyota announced its decision to pull the plug last August.

In the aftermath ofThursday's closing, it's clear that Toyota has become the more successful company. It overtook GM to become the global sales leader in 2008 and has gained significant market share even in U.S. sales.

GM eventually learned the lessons it needed, and closed much of the quality gap with Toyota. But it didn't make those changes fast enough.

GM a slow learner. The plant's closure might not have been necessary if GM had not had so much trouble applying the lessons of the plant across its manufacturing system. Its difficulties focusing on quality and productivity led to billions in losses, a slide in market share and eventually, bankruptcy.

But the closure also shows how the sharp decline in demand for new cars has hurt even a successful automaker like Toyota, which found itself with excess manufacturing capacity in North America for the first time in its history, even before its recent recall crisis.

Today GM plants are generally rated as efficient as those of its Japanese competitors. Various vehicle quality measures confirm company claims that its vehicles are also comparable to the imports, even if customer perception still lags behind. But it took decades to approach that parity.

Mark Hogan, a former GM executive who became the chief administrative officer of the NUMMI plant shortly after it opened, said that the insular nature of GM, and the distrust between both management and labor, made it very difficult to apply the lessons of NUMMI across the company.

"GM was, in its heritage, an extremely proud company for good reason. It dominated the U.S. market for 90 of its 100 years," he said. "Overcoming that internal pride and businesses culture was the biggest challenge GM had."

Hogan said he believes that if the lessons of NUMMI had been adopted more quickly by GM, it could have saved the company from the problems that followed, including its ultimate bankruptcy.

"Obviously the speed with which GM was able to change in the 80s and 90s in retrospect wasn't fast enough," he said. "If we had embraced the production system, we could have dramatically improved productivity and quality faster, and that would have had an effect on the bottom line, no doubt."

Hogan, who left the company in 2004 and now runs The Vehicle Production Group, a specialized manufacture of handicap-accessible vehicles, said he thinks it was a mistake that GM pulled out of the NUMMI joint venture.

"I thought that NUMMI represented a unique opportunity to continuously learn about how Toyota was improving its production system," he said.

Toyota was clearly far more successful learning what it needed from the new plant than was GM. It soon started opening plants on its own across North America.

Today it operates 13 facilities other than NUMMI, employing more than 40,000 employees and building 1.5 million vehicles in 2008, before the financial crisis caused industrywide U.S. sales to plunge. About 4,700 workers will lose their jobs with the closing of NUMMI.

The NUMMI plant is the only plant with workers represented by the United Auto Workers union that Toyota operates, but Hogan said he believes that the cost of doing business in California, far away from other auto plants and suppliers, rather than the union contract is what prompted Toyota to finally pull the plug on the plant.

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